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Rising natural-gas prices mean American Electric Power is burning more coal and less gas
compared with a year ago, according to the company’s chief executive.

“Our coal generation has picked back up considerably,” said Nick Akins, the president and CEO,
in an interview.

AEP is one of the largest users of coal in the country. But the coal industry has suffered as
AEP and other utilities have made use of what had been less expensive natural gas.

The market price of natural gas bottomed out last year at about $2 per 1,000 cubic feet. Since
then, it has gradually risen, hitting $4 last month. This is still a low price in the context of
the past decade or so, but that is a substantial increase in the short term.

Now, the price exceeds a level at which “you’ll see the pendulum swing back toward coal-fired
generation,” Akins said.

He spoke after the company’s annual shareholders meeting, held in Columbus. AEP will release its
first-quarter earnings report on Friday.

Right now, the company’s coal plants are operating at about a 65 percent “capacity factor,”
which refers to how much energy was generated compared with the maximum possible; AEP’s natural-gas
plants are operating at about half that level, which is almost a complete reversal from last year
at this time, Akins said. AEP chooses how much it wants to use each plant based on market demand
and the cost of operation.

The whole electricity-utility sector is going through some version of this process, trying to
figure out which fuel will have the lowest cost today and in the near future, said Kenneth B.
Medlock III, an economist at Rice University in Houston.

“We’re going to be walking that knife’s edge for a while,” he said. By that, he means that there
will be more switching from coal to gas, and back again, as prices change.

While coal is a less-expensive fuel for existing plants, natural gas remains the best option for
AEP’s new power plants, Akins said.

“The capital cost (of a new gas plant) is so much less,” he said.

And he doesn’t expect that to change.

“I see (the gas price) staying below $7 for the next decade or so,” he said.

The annual meeting included shareholder votes for the board of directors and to approve an
executive-pay plan, both of which are routine items. Shareholders rejected a proposal that would
have required an increase in disclosure of the company’s donations to state-level lobbying.

AEP’s chairman, Michael Morris, was CEO until he retired in November 2011. He introduced the
audience to Pablo Vegas, who was appointed president of AEP Ohio about a year ago.

“Rest assured, when the lights go out through the system, the lights are out at Pablo’s house,”
he joked. “It’s one of the requirements here.”